SECTION VI FILING REQUIREMENTS

Summary Filing Requirements for Tribal Gaming Operations

Business Operations

Patrons

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IRS Tax Forms to File for Gaming Activities

Forms W-2G, 1099, 945, 1042-S, 1042

Determining the right form to file requires knowledge about the type of winnings as well as the person receiving them. Most individuals will receive either Form W-2G or Form 1099-MISC depending on their winnings. However, foreign individuals will receive Form 1042-S.

File Form W-2G, Certain Gambling Winnings, when an individual wager results in a win (jackpot) with a minimum specific dollar amount at a gaming event.

Tribal gaming operations generally report winnings if the amount is $600 or more and at least 300 times the amount of the wager. However, these requirements do not apply to winnings from bingo, electronic gaming devices (for example, slot machines) and keno. Winnings (not reduced by the wager) from a bingo game or slot machine of $1,200 or more are reportable gaming winnings. Winnings from a keno game (reduced by the wager) of $1,500 or more are reportable gaming winnings.

File Form 1099-MISC when a prize is awarded from an event without a wager. When filing paper returns, transmit to the IRS Form W-2G and Form 1099-MISC (with Form 1096, Annual Summary and Transmittal of U.S. Information Returns). You will find more information on Form 1042-S filing and withholding requirements on foreign winners (as well as Form 1042 filing requirements) in the Verifying Residency section of this publication.

In addition to filing information returns, you may be required to withhold on gaming winnings. Deposit this withholding with the IRS and reconcile on annual returns using either Form 945 or Form 1042. For more information on Form 945 see the Reporting and Withholding Gaming Winnings section of this publication.

Identification Requirements

Form W-2G must contain the winner’s name, address and Social Security number. It must also contain a general description of two types of valid identification (for example, driver’s license, Social Security card or voter registration card) furnished to the gaming operator who will use these to verify the winner’s name, address and Social Security number. A valid ID is an unexpired government-issued form.

Examples of official government-issued IDs include:

• Driver’s license

• State-issued identification card

• Tribal-issued identification card

• Passport

• Alien registration card

• Military identification

If a gaming operator makes a payment without securing the winner’s TIN, they must perform backup withholding on the winnings. See page 27 for more information about backup withholding and Form 945 filing requirements.

The verification requirements for Form 1099-MISC are not the same as Form W-2G. While Form 1099-MISC also requires the winner’s name, address and Social Security number, it does not require two separate forms of ID or descriptions. One valid photo identification is recommended to verify the name and address. You can substitute a Form W-9 for a Social Security card to certify a winner’s TIN. The patron does not sign the Form 1099-MISC.

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Reporting and Withholding Gaming Winnings

The following presumes the winner is a U.S. resident. Foreign persons are subject to different withholding requirements. For more information on winners who are foreign persons, see the section on Verifying Residency.

Report gambling winnings on Form W-2G if:

• The winnings (not reduced by the wager) from a bingo game or slot machine are $1,200 or more;

• The winnings (reduced by the wager) from a keno game are $1,500 or more;

• The winnings (reduced by the wager or buy-in) from a poker tournament are more than $5,000;

• The winnings (except winnings from bingo, slot machines, keno and poker tournaments) reduced, at the option of the payer, by the wager are $600 or more and at least 300 times the amount of the wager; or

• The winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding).

Types of Winnings

Regular Bingo Game Win - A bingo game operator must complete Form W-2G for a single bingo win of $1,200 or more. The winner must furnish the bingo game operator with their TIN (typically Social Security number).

Example 1: A tribal gaming operation conducts a weekly bingo game. A payout of $1,300 is made for a single game. The winner furnishes identifying information, along with the TIN to the tribal gaming operation. The tribal gaming operation must complete Form W-2G, but is not required to withhold income tax.

If the winner does not provide a TIN, the bingo game operator must withhold tax (known as backup withholding) at the current backup withholding rate.

Example 2: If the winner in Example 1 had refused to provide their TIN, the tribal gaming operation would complete Form W-2G without the TIN and apply backup withholding. The gaming operation reports withheld income tax on Form 945, Annual Return of Withheld Federal Income Tax. In 2018 the winner would receive $988 ($1,300 gross winnings minus $312 - federal income tax withheld at the rate of 2018 backup withholding rate of 24%). (Rates can change – check irs.gov for the current rate).

Lotteries, Sweepstakes, Horse Races, Dog Races, Instant Bingo Game Wins/Pull-Tabs, Jai Alai and Other Wagering Transactions - A single win less than $600 involving lotteries, sweepstakes, horse races, dog races, instant bingo game wins/pull-tabs, jai alai and other wagering transactions does not require completing a Form W-2G or withholding federal income tax.

A single win of at least $600 requires completing a Form W-2G if the prize is at least 300 times the amount of the wager. The winner must furnish proper identification to the game operator along with their TIN. If the TIN isn’t provided, the game operator must withhold tax at the current backup withholding rate. See Section VI for identification requirements. Backup withholding applies to the amount of winnings reduced, at the option of the payer, by the amount wagered. See Reportable Gambling Winnings in the Instructions for Forms W-2G and 5754 for more information.

Example 1: A tribal gaming operation sells pull-tabs at its weekly bingo session. Each pull-tab costs $1. One type of pull-tab sold pays a progressive jackpot. The winning ticket from each box entitles the ticket holder to

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select a number from a second punchboard without making an additional wager. If the ticket holder selects the winning punchboard number, the holder wins the jackpot. If the winning ticket holder does not select the winning punchboard number, the gaming operation may pay a consolation prize. The jackpot is increased and carried over to the next box of pull-tabs sold. If a patron wins $100 on the winning ticket from the box of pulltabs and then selects a winning number from the progressive punchboard that pays $550, the tribal gaming operation must complete a Form W-2G. Since the initial ticket purchase entitled the patron to both amounts, the gaming operation combines them as a single win of $649 ($650 - $1 – the pull-tab cost).

Example 2: A tribal gaming operation sells instant bingo game tickets. A winner receives $950 from one of the pull-tabs that cost $1. The winner refuses to provide their identification number; therefore, the tribe must complete Form W-2G and withhold 24% of the winnings. The gaming operation reports the income tax withheld on Form 945. The winner receives $721.24 ($950 minus $1 wager, less $227.76 federal income tax withheld at the rate of 24% ($949 x .24 = $227.76).

Wins of more than $5,000 - If a single win, less the wager, exceeds $5,000, the gaming operation must complete a Form W-2G and withhold on the net winnings at the current rate.

Example 3: A tribal gaming operation has a winner of $5,100 from one of the pull-tabs, which cost $10. Because the winnings, less the wager, exceed $5,000, complete Form W-2G and withhold federal income tax. Report the income tax withheld on Form 945. If the winner provides identification, the winner receives $3,878.40 ($5,100 gross winnings less $1,221.60 withholding tax = computed $5,100 minus $10 wager, times 24%).

The following chart describes when a tribal gaming operation must issue a Form W-2G:

Multiple Winners – When paying out a win from a wagering activity, a tribal gaming operation needs to determine whether it’s paying a member of a group of two or more winners on a single ticket or to a person who is not the actual winner.

If so, the tribal gaming operation must obtain a completed Form 5754, Statement by Person(s) Receiving Gambling Winnings. This form enables the tribal gaming operation to prepare Form W-2G. There are two parts to Form 5754. The first part lists the identification of the person who is receiving the winnings. The second part lists the actual winners and their respective share of the winnings. The tribal gaming operation must use the information to complete Form W-2G for each winner. The tribal gaming operation does not submit Form 5754 to the IRS, but it should keep the form with its tax records for four years.

The amount paid on the winning ticket, not each individual’s share of the proceeds, determines whether the tribal gaming operation will need to complete a Form W-2G.

Example: A tribal gaming operation sells pull-tabs at its weekly bingo session. John Doe and Judy Smith

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jointly purchased a $1 pull-tab that was the winning ticket of a $1,200 jackpot. John Doe appears at the cage to redeem the pull-tab.

If John and Judy contributed equal amounts toward the purchase of the ticket and agreed to share equally in any winnings, complete Form 5754 as follows:

• Part I - List the name, address and identification number of the individual who was actually paid (win must be paid to one individual). In the box for amount received, include the total $1,200 win.

• Part II - List John Doe’s name, address and identification number. Include in box (d) $600 as the amount won (his share of the win). List Judy Smith’s name, address and identification number. Include in box (d) under her name $600 (her share of the $1,200 win).

• Signature - If the tribal gaming operation withholds federal income tax, then John Doe signs and dates the form (not required in this instance unless John Doe refuses to supply his TIN).

The tribal gaming operator should complete the Form W-2G upon paying the winnings to the winner. Copies B, C and 2 of the form may be given to the winner at the time of completion. However, the winner must receive these copies no later than January 31 of the following year. The tribal gaming operator must submit to the IRS Copy A of Form W-2G and Form 1096 by February 28 of the year following the year the gaming winnings were paid, if filing paper returns. The tribal gaming operator submits Copy 1 of Form W-2G to the state and retains Copy D.

A tribal gaming operation may voluntarily file electronically using the FIRE system (see FIRE at the end of this section). However, if it prepares 250 or more information returns, it must file electronically. The requirement applies separately to each type of form.

Example: If you must file 500 Forms W-2G and 100 Forms 1099-MISC, you must file Forms W-2G electronically, but you are not required to file Forms 1099-MISC electronically.

Non-Wagering Prizes – Tribal gaming operations must issue a Form 1099-MISC to each patron who receives $600 or more in a calendar year in cash or prizes where there is no wager. See the Gaming Withholding and Reporting Threshold – Forms Needed chart in Section VI. Aggregate and report separate transactions involving the same patron onto a single form for the calendar year as shown by the following examples:

Example 1: Jim wins a television with a fair market value of $800 in a drawing on January 17. On October 16 of the same year, Jim wins a cash door prize of $300. Issue Form 1099-MISC to Jim for $1,100.

Example 2: The tribal gaming operation has a 4th of July drawing for a vehicle. Players that put at least $1,000 cash into slot machines, receive a ticket. Also, any table game player who buys in with $100 or more receives a ticket. All the drawing tickets are dropped into a secure box and held until the day of the drawing. On July 4, a ticket is drawn, and the winner receives the vehicle. The casino issues a Form 1099–MISC to the winner.

Note: If an employee of the tribal gaming operation wins a prize see Section IV regarding reporting.

The IRS may assess penalties against a tribal gaming operator if the Form 1099 or Form W-2G contains incomplete or incorrect information. Publication 5343, Helpful Hints for Indian Tribes and Tribal Entities to Avoid Penalties on Federal Tax Deposits and Information Returns, offers suggestions on how to avoid penalties and outlines what to do if the IRS assesses penalties.

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Withholding

Tribal gaming operations making payment of certain gambling winnings must withhold tax from these payments. This is referred to as regular gambling withholding. The current rate for this withholding is 24%. The tribal gaming operation reports the amount of gambling withholding on Form 945, Annual Return of Withheld Federal Income Tax. If there are tribal-state compact requirements for state withholding, the tribal gaming operation reports that amount on the state forms.

Withhold at the 24% rate if the winnings minus the wager are more than $5,000 and are from:

• Sweepstakes;

• Wagering pools;

• Lotteries;

• Wagering transactions in a pari-mutuel pool with respect to horse races, dog races or jai alai, if the winnings are at least 300 times the amount wagered; or

• Other wagering transactions, if the winnings are at least 300 times the amount wagered.

Regular gambling withholding doesn’t apply to winnings from bingo, keno or slot machines, nor does it apply to winnings from other wagering transactions if the winnings are $5,000 or less. However, backup withholding may apply if the winner doesn’t provide a TIN.

Regular gambling withholding applies to the total amount of gross proceeds, not merely the amount over $5,000. View About Form W-2G, Certain Gambling Winnings for regular withholding rates on gambling winnings.

If a wagering win is not cash, the fair market value of the item won determines the amount of the winnings. If required, the gaming operation applies withholding or backup withholding rates to the fair market value of the item won. It may collect the amount from the winner before delivering the win or pay the taxes on the winner’s behalf and increase the amount of the win. The Form W-2G instructions for non-cash payments provides detailed examples.

What if the tribal gaming operation pays the tax as a part of the winner’s proceeds? If a tribal gaming operation wants to award the full amount of the win, then the win needs to be “grossed up.” The tribal gaming operation pays the federal tax it is required to withhold without deducting the taxes from the winner’s proceeds, and the winner’s proceeds are deemed to include the tax paid by the tribal gaming operation. On Form W-2G, the tax paid by the tribal gaming operation appears in the box for federal income tax withheld. The tax paid is also added to the amount of the winnings and the combined amount is reported as the win.

The following chart illustrates the withholding and backup withholding rates.

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Note: These rates are subject to change when the underlying withholding rates change (check rates on irs.gov or contact your ITG specialist)

Backup withholding applies when the winner fails to provide a TIN to the tribal gaming operation for a reportable win or prize. If the TIN does not contain nine digits or contains alpha characters, the winner has not provided a valid TIN. The gaming operation can use a Form W-9 to request a winner’s TIN. If the tribal gaming operation makes payment before securing the TIN, then it may be held liable for backup withholding taxes. The following chart illustrates the backup withholding rates (rates can change – check irs.gov).

Example 1: A tribal gaming operation owes a reportable pull-tab win of $750 to a single ticket winner. The winner would only give their name and address. Since the winner failed to supply a TIN, the tribal gaming operation should collect backup withholding of $180 ($750 times 24%) and pay the winner $570 ($750 $180). If the winner had supplied their TIN, no withholding would be required.

Reporting Withholding - The tribal gaming operation must use Form 945 to report regular withholding from gaming proceeds. Report withholding on line 1 and backup withholding on line 2. File this form annually by January 31 of the year following the year of the winnings.

Note: If you made deposits on time in full payment of the taxes for the year, confirm the grace period filing by reviewing Form 945 instructions.

The table below identifies games and when withholding and backup withholding are required.

A tribal gaming operation is responsible for paying to the IRS the amount of regular gambling withholding or backup withholding due regardless if it collects the withholding from the recipient. The best time to collect withholding or backup withholding is before paying the winnings.

Example: Jack purchased a $1 ticket for a raffle conducted by a tribal gaming operation. On October 31, the drawing was held, and Jack won $6,000. Since the proceeds from the wager are greater than $5,000 ($6,000 minus the $1 cost of the ticket), the tribal gaming operation must withhold $1,439.76 ($6,000 prize-$1 wager X 24%). Jack receives $4,560.24 cash. If the tribe fails to withhold, it will be liable for the tax.

The IRS will assess penalties for failure to deposit taxes withheld, failure to file a return on time and failure to pay taxes on a return.

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Verifying Residency

If the winning patron provides you a foreign address and no Social Security number you should withhold at 30% for nonresident aliens on Form 1042-S. Form 1042-S may either be filed on paper or electronically, using the FIRE system. For more information, see Publication 1187, Specifications for Electronic Filing of Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding.

Note: Gaming operations report foreign person withholding on Form 1042, not Form 945.

If the winner cannot provide a valid driver’s license and Social Security number, then you should request other forms of identification, such as:

• National identification card

• U.S. state-issued identification card

• Passport

• Visa

• U.S. military identification card

• U.S. Citizenship and Immigration Service (USCIS) photo identification

• U.S. resident alien card (often referred to as a “green card”)

If the winner does not have a Social Security number or a U.S. address, provide them with Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals). Usually nonresident aliens (commonly known as foreign persons) are visitors from other countries or are temporarily residing in the U.S. If the individual is a nonresident alien, use Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, to report payments made to them.

Note: Individuals born in U.S. Virgin Islands, Puerto Rico and Guam are generally U.S. citizens and receive Forms 1099/W-2G. Persons born in American Samoa or the Commonwealth of Northern Mariana Islands are considered nonresident aliens subject to foreign withholding and Form 1042-S.

In addition, the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against:

• Targeted foreign countries and regimes, terrorists, international narcotics traffickers;

• Those engaged in activities related to the proliferation of weapons of mass destruction; and

• Other threats to the national security, foreign policy or economy of the United States.

As part of its enforcement efforts, OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. OFAC also lists individuals, groups and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific. Collectively, these individuals and companies are called “Specially Designated Nationals.” Their assets are blocked and U.S. persons are generally prohibited from dealing with them. Consult this list before making payments to nonresident aliens. Note, U.S. persons can be on this list. OFAC has authority to assess penalties for compliance failures.

Unlike the requirements for Forms W-2G and 1099-MISC, there is no dollar threshold for withholding or reporting purposes related to Form 1042-S. A tribal gaming operation must withhold taxes and report any gambling proceeds or other payments paid to a nonresident. The withholding rate on nonresident aliens is generally 30% unless the foreign country has a tax treaty with the U.S. for a lower rate.

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You can use Form W-8BEN for status determination of nonresident aliens. Use Section 1 for identification. Nonresident aliens may claim a lower withholding rate under a treaty, if applicable, by preparing Section 2 of Form W-8BEN. Refer to Publication 901, U.S. Tax Treaties, and Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

A patron can submit a Form W-8BEN to receive a reduced rate or an exemption from withholding as a resident from a tax treaty country. However, a winner still needs to provide a U.S. TIN to receive this treatment. If a winner is from a treaty country but does not have a U.S. TIN, then withhold at 30% on Form 1042-S.

Exception – Proceeds from certain games are exempt from taxation. You are not required to impose tax or report gambling income of a nonresident alien playing traditional blackjack, baccarat, craps, roulette and big6 wheel games in the United States.

Use Form 1042 to report payments made to nonresident aliens and required withholding. File Form 1042-T with paper Forms 1042-S. Submit these forms to the IRS by March 15 of the following year. You may voluntarily file electronically using the FIRE system. If you file 250 or more Forms 1042-S during a year, then the tribal gaming operation must submit them electronically. The IRS may assess penalties against a tribal gaming operator if the information shown on the Form 1042-S is incomplete or incorrect.

A tribal gaming operation is responsible for paying to the IRS the amount of foreign withholding due, whether or not it collects the withholding from the recipient. The best time to collect foreign withholding is before it is paid. The IRS will assess penalties for failure to deposit taxes withheld, failure to file a return on time and failure to pay taxes on a return.

FIRE

You can file electronically using the Filing Information Returns Electronically (FIRE) System. The FIRE System operates 24 hours a day, 7 days a week. Publication 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G, provides information on preparing files for upload through the FIRE System. You can use FIRE to file Forms 1042-S, 1098, 1099, 8027 and W-2G. If you file 250 or more of these returns for any calendar year, you must file your information returns electronically. If you file fewer than 250 information returns, then you can voluntarily use the FIRE System.

The benefits of using FIRE include:

• It’s paperless - no Form 4804 requirements

• It’s a secure system that supports SSL 128-bit encryption

• It’s easy to use

• It’s efficient, with a 1-2 day notification of receipt of returns

• It’s fast because transmission time is reduced by up to 95%

• It’s flexible because due dates are extended for electronically filed forms 1098, 1099 and W-2G

To enroll, complete Form 4419, Application for Filing Information Returns Electronically (FIRE), and mail it to IRS-Martinsburg Computing Center (MCC). You can also contact MCC toll-free at 866-455-7438 between 8:30 a.m. and 4:30 p.m. Eastern time or by email.

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Gaming Withholding and Reporting Threshold — Forms Needed

1 Winnings proceeds must exceed $5,000 after reduction of the amount wagered
2 Payments made to nonresident aliens are subject to withholding and reporting on Form 1042-S (Proceeds from traditional blackjack, craps,
roulette, baccarat or big 6-wheel are exempt from withholding and reporting)
3 Wagers placed, winners determined and disbursement of prizes made in the presence of all participants
4 Either advance wagers accepted or winner not required to be present results in excise tax
5 Multi-race and Multi-way Keno games must be aggregated and reported as a single transaction as indicated above
6 See Revenue Procedure 2007-57 for poker tournament fling and withholding requirements
7 For tournaments other than poker tournaments, entry fees must be analyzed to see if the entry fee is a wager, and if the proceeds exceed the
wager by 300 times or more, or if the tournament is a wagering pool
8 Electronic (coin-operated) pull-tabs are not subject to the gaming excise tax

Form W-2G must be issued for slot machine and bingo wins of $1,200 or more and for keno wins of $1,500 or more. Keno winnings from one game must be reduced by the amount wagered in one game.

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